FAQs

Learn more about our investment strategy

Frequently Asked Questions


Why is OWLshares unique?

Our mission is to create financial products that help people and the planet. It’s not an afterthought; it’s not an alternative. It’s our core strategy, and we’re fiercely proud of it.

We believe investors don’t have to sacrifice financial returns to make a positive impact on the world. Every index or product we offer — or will ever offer — will aim for both sustainability and financial return.

OWLshares believes that financial markets constitute one of the greatest mechanisms for creating positive change — not just for investors, but for the world at large. OWLshares wants to help make that benefit and that power as widely accessible as possible, and wants to see concerned investors extend their reach and impact.

How does OWLshares benefit investors?

OWLshares’ proprietary ESG scores, based on the most thorough data set available, can be used to ESG-optimize any investment strategy. OWLshares indices will allow a wide range of investors the opportunity to upgrade common portfolio asset categories to ESG-optimized versions. This allows investors to allocate capital to securities they already use while at the same time diverting a greater portion of the capital to better corporate citizens, helping make a positive impact on society and the world.

What is ESG?

ESG stands for environmental, social, and governance. Usually ESG refers to data about how a company manages their environmental footprint, how fairly a company interacts with their social ecosystem, and how well a company governs itself to protect shareholders. ESG can also refer to scores or ratings based on that data, or to investment strategies that incorporate any of the above.

Related: Five steps to become an E-S-GeniusThe natural history of ESG

Why is ESG important?

ESG data provides remarkable insight into the risks and opportunities of investing in a specific company. Companies that reduce their ESG risks are on the whole more sustainable than their lower-scored peers; more sustainable companies will generally financially outperform their peers over time. The data unequivocally supports this conclusion, which is why institutional investors have been consulting ESG data vendors for years to analyze their investments.

Additionally, ESG can help identify those companies which behave as better corporate citizens — those who minimize their environmental footprint, treat employees and other stakeholders fairly, and operate with honesty and transparency.

Combining this elevated sustainability with ESG’s potential to enhance performance is a powerful tool to allocate investment dollars more positively. We want to improve the world now, for our children, and for future generations, and believe ESG-optimized investment products have the unique power of aligning self-interest with helping the world. The profit motive can help deploy capital for wider beneficial impact.

Related: Five steps to become an E-S-GeniusThe natural history of ESG

How does ESG relate to investing?

One word: Materiality. Each of the literally hundreds of ESG issues represents an opportunity for a company to reduce risk, increase profit, or both. Every industry has its own set of ESG issues specific to the operation of that industry’s businesses. ESG reporting, research, and analysis work toward the goal of helping businesses operate better and grow for long term success.

Related: ESG is not an investment strategyFive steps to become an E-S-Genius

What is SRI?

Sustainable, responsible, and impact investing means investment strategies that consider ESG factors with the goal of financial return and positive social impact. When used to stand for socially responsible investing (a term used less and less frequently), it has often meant screening out companies or industries deemed by some to be harmful to society, but we use it only in the first sense.

Related: Should we divest?Sustainable activism

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What is impact investing?

Impact investments invest in companies, organizations, and funds with the goal of generating social and environmental impact alongside a financial return.

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As a responsible investor, do I have to sacrifice returns?

Thousands of studies have shown a clear link between ESG scores and corporate financial performance. In the majority of cases, ESG properly applied should enhance returns over the long term.

Related: How can families invest responsibly?Does ESG have an image problem?,

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Where do ESG scores come from?

ESG scores are primarily generated by research companies like OWLshares. We create proprietary ESG scores that cover the majority of public companies. Most ESG research firms employ a team of analysts that comb through sources (including company filings, voluntary corporate social responsibility disclosures, consultants, news media, NGOs, watchdog groups, and other public information sources) to rate how companies are managing their ESG issues.

These issues have been developed and proposed by standards boards, public interest groups who research how industries and businesses interact with their stakeholders and the planet.

Related: The natural history of ESG,  Five steps to become an E-S-Genius

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Why doesn’t everyone use ESG data?

There are some challenges to using ESG well, though they’re clearly outweighed by the benefits.

  •      On the whole, each ESG research provider only rates a limited universe of companies. So, if you work with only one source, you may not have access to data on all the companies you’re analyzing.
  •      Every ESG ratings provider has its own ratings methodology, which is subjective on many levels.
  •      Each provider chooses which industry-specific ESG issues to use in forming their ratings; it’s common for an under 60% overlap between which issues each research company deems important for each industry.
  •      Each provider creates its own weighting plan for those issues. Rightfully, they weight more important issues more heavily, but this increases the ratings divergence.
  •      Each provider chooses and uses ESG data in different ways; each analyzes and interprets it differently. This is a great source of subjectivity
  •      Ratings companies looking at the same data report vastly different ratings.
  •      Each ESG ratings provider charges a steep fee to access the ESG data, and thorough investors often need to consult more than one vendor.

Related: Does ESG have an image problem?, The natural history of ESGESG is not an investment strategy

If ESG data is inherently subjective, how can I rely on any of it?

The challenge of using ESG is mostly due to subjective selection of what ESG data to use and how to apply it when analyzing whether to invest in a company. These same challenges exist in other methods of fundamental investment research. For instance, analysts give different weight to standard metrics (like price-to-earning, sales growth, management experience), but each of these points is still valuable alone or taken as a whole.

Like all of these metrics, all ESG research provides valuable insights into how a company is managing their material risks and opportunities. Undoubtedly, more data and more analysis is better than less; some data and some analysis is better than none.

Related: ESG is not an investment strategyDoes ESG have an image problem?Five steps to become an E-S-Genius

If ESG itself is so valuable, why do some ESG-themed indices and funds underperform their benchmarks in certain periods?

Simply put, ESG is merely data. Good data is a powerful tool in the investor’s toolbox, but it needs to be wielded properly for good results. Existing ESG-themed indices and funds all apply ESG in different ways, and heavily employ exclusionary tactics. As a result, those products are not an effective gauge of ESG’s effect on performance.

Companies that focus on their ESG performance are generally better managed, with processes and procedures that promote the long-term viability of their businesses. That said, ESG-related practices are only a subset of what builds value in a company. There will always be short-term reasons why companies with lower ESG scores may outperform — e.g., the release of a new product, strong marketing, temporary cost-cutting, market psychology, and so on.

Over the long term, we believe consistency is a stronger strategy. Higher-rated companies that adopt accountable and repeatable processes exhibit operational excellence.

Related: Does ESG have an image problem?ESG is not an investment strategy

How can I use ESG for investing?

Most individual investors have limited options for using ESG in their investment decisions. High net worth individuals and institutions may pay for access to ESG data, hire a sustainability consultant to create a suitable portfolio, or even engage the services of an index provider to create a fund for their institution or like-minded investors.

Retail investors can choose from an increasing number of ESG-themed ETFs or other funds. Not every fund will suit every investor’s tastes; read the prospectus carefully to understand how the index is determined, how the methodology affects exposure and diversification, and what risks that entails. Few ESG-themed funds have achieved mainstream status, many struggling against the market’s perceptions of what can be seen as a niche product. But as ESG gains traction and is better understood, funds which include ESG considerations will become more mainstream.

Related: Five steps to become an E-S-GeniusWhat’s an ETF?

What happens if ESG standards change again? Could that affect index performance?

Not if, but when. ESG standards continue to evolve. As the ESG industry has developed, standards organizations have focused more and more on ESG issues that are material to company performance; they and the ESG research companies continue to perfect their craft.

We believe these trends will continue. While there is always the chance that new standards will cause a temporary shift in relative ESG scores, responsible companies on the whole will continue to respond and rise to the top.

We believe an index based on evolving standards should likewise improve over time.

Related:  The natural history of ESGFive steps to become an E-S-Genius

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How do you pick the stocks in your index?

OWLshares is not an active manager and does not pick stocks.  As a company, we are launching passive indices that fit into familiar asset classes such as large cap, small cap, value, growth, and others. They are designed to provide a broad access to these popular asset classes while using  passive and transparent rules to create familiar and attractive investment profiles similar to common benchmarks.

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Why don’t you weight your index by market-cap or revenue?

Our indices weight constituents by ESG score. This takes advantage of data which, by its very nature, can reveal companies’ operational excellence and sustainability. We consider ESG a better indicator of suitability for weighting than traditional weighting methods.

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Why don’t you eliminate low-scoring companies or disagreeable industries from your index?

Our mission is to identify companies that do a better job managing their ESG risks and opportunities, independent of industry or business model. These companies show better long-term viability compared to their peers. They actively work to reduce their environmental footprint, operate their businesses in a socially conscious fashion, and manage themselves with strong governance. This makes the world a better place.

Our inclusive strategy maintains good market exposure, reducing risks inherent in strategies that screen certain industries or companies. By weighting our index in favor of higher ESG scores, we reward good behavior; by reweighting as we update scores, we reward improvement.

Related: Should we divest?Sustainable activism

Won’t the inclusion of certain stocks alienate some conscious-minded investors?

Other approaches may be exclusionary, or may selectively omit entire industries or classes of equity. This has led to the availability of many bespoke indices or niche theme funds.

Our approach is to weight index constituents by their ESG score, elevating the concept of ESG to a foundation principle for all stock selection. We see this as the pure application of ESG. This approach rewards sustainability and improvement. We feel this is the strongest strategy to invest responsibly.

Related: Should we divest?Sustainable activism